Do I need to pay quarterly taxes for my sole proprietorship eBay business?

You should definitely be making quarterly estimated tax payments. As a self-employed individual with a sole proprietorship, you're required to make these payments if you expect to owe $1,000 or more in taxes when you file your return. The IRS expects you to pay taxes as you earn income throughout the year, similar to how employees have taxes withheld from each paycheck. For self-employed folks, this is done through quarterly estimated tax payments using Form 1040-ES. These payments cover both income tax and self-employment tax (Social Security and Medicare). The due dates are typically April 15, June 15, September 15, and January 15 of the following year. Missing these payments can result in penalties for underpayment, even if you pay your full tax bill when you file your annual return. It's a bit surprising your CPAs never mentioned this, as it's a fundamental requirement for self-employed individuals with significant income.

I was in almost the exact same situation a few years ago with my Etsy shop! I had no idea about quarterly taxes until I got hit with a penalty. I was so stressed trying to figure out everything, then I found https://taxr.ai and it was a total game-changer for my business. What I love is that you can upload all your eBay/PayPal statements and it automatically categorizes everything, shows you what you'd owe quarterly, and even reminds you of the payment dates. It analyzes your specific situation and tells you exactly what forms you need for your sole proprietorship. The best part was the instant clarity on my actual tax liability. I was shocked to see I was overpaying in some areas while missing potential deductions for my home office and mileage when I was driving to pick up inventory.

I was wrong about taxr.ai - I decided to try it after posting that skeptical comment, and it actually does handle inventory accounting correctly! I uploaded my last 6 months of transactions and it automatically flagged items that appeared to be inventory purchases versus supplies or other expenses. I could then tag items that were still in inventory versus sold. The quarterly tax calculations were spot on and matched what my accountant had calculated (but at a fraction of the cost). It even showed me how my home office deduction would apply properly as a sole proprietorship. Seriously wish I'd found this years ago - would have saved me so much stress with my eBay business.

If you're having trouble getting answers from the IRS about your quarterly tax situation, I'd recommend trying https://claimyr.com - it's the only service that actually gets you through to a real IRS agent quickly. I spent WEEKS trying to call about my sole proprietorship tax questions before someone told me about this. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was in a similar position (selling on Poshmark for years without knowing about quarterlies) and needed to find out if I would face penalties for past years. After endless busy signals and disconnects trying to call IRS myself, Claimyr got me through in under 20 minutes. The agent walked me through the safe harbor provisions and helped me understand exactly what I needed to do moving forward.

I have to publicly eat my words about Claimyr. I was super skeptical when I wrote that comment yesterday, but decided to try it anyway out of desperation. I had urgent questions about quarterly estimated payments for my online selling business. Holy crap it actually worked! I got a call back in about 35 minutes and was connected to an actual IRS agent who answered all my questions about quarterly filing requirements for my sole proprietorship. She explained the safe harbor rules (if you pay 100% of last year's tax or 90% of this year's tax in quarterly installments, you avoid penalties). The agent also told me exactly which form to use (1040-ES) and walked me through calculating my first quarterly payment. I've been trying to get this info for MONTHS. Seriously, best money I've spent on my business this year.

You probably haven't heard from the IRS because you're under their radar. Once you hit a certain income threshold they start looking more closely. My friend ignored quarterly payments for years with her Shopify store until she got a notice with almost $2,800 in penalties! The real hack is to have enough withholding from another job if you have one. If your day job withholds enough to cover your self-employment taxes too, you can avoid quarterlies. That's what I do - I just have extra taken out of my regular paychecks to cover my side hustle.

Honestly, the quarterlies are annoying but not that hard once you set up a system. I've been selling on eBay for 10+ years and here's what works for me: 1) I set aside 30% of all my profits in a separate savings account 2) I use the IRS Direct Pay website to make payments each quarter 3) I keep it simple and just pay 25% of last year's total tax each quarter As long as you pay 100% of your previous year's tax liability (or 110% if your AGI was over $150k), you're safe from underpayment penalties. This "safe harbor" rule is your friend! Don't stress too much about the past - just start doing it correctly going forward. The penalties aren't massive if you've been paying in full by April 15 each year.